The Oil and Gas Sector Is Changing — and So Is Geopolitics

By ROBERT D. KAPLANDEC. 28, 2017

WINDFALL – How the New Energy Abundance Upends Global Politics and Strengthens American Power – By Meghan L. O’Sullivan – 479 pp. Simon & Schuster. $29.

Geopolitics is power played out against geographical settings. In this battle, ideas and ideologies matter. But it is often the most technical and complex factors — the ones we least understand and therefore discount, according to Columbia University’s Robert Jervis — that carry the greatest weight. There may be no factor more influential in contemporary geopolitics and yet least understood by journalists and policymakers than the energy revolution, which is less about renewables like wind and solar power than about how the oil and gas sector itself is changing. A Harvard professor and former assistant to President George W. Bush, Meghan L. O’Sullivan, has dissected the intricacies of this industry to offer a riveting and comprehensive geopolitical theory in “Windfall.”

The decline in crude oil prices from $100 per barrel to around $60 and below over the past two years, along with the widespread ability to extract shale gas through hydraulic fracturing of rock, or fracking, has moved the United States from being “the world’s thirstiest consumer of overseas oil to a position of greater self-sufficiency,” O’Sullivan writes. Falling energy prices have also stabilized Europe’s economy, helped Japan manage the aftermath of the Fukushima nuclear disaster, allowed China to more aggressively pursue its new Silk Road strategy across Eurasia (while reducing the pain of a decelerating economy), kept Russia from becoming an energy superpower and weakened the prospects for energy-rich sub-Saharan African countries. “On the whole,” the author says, “the new energy abundance is a boon to American power — and a bane to Russian brawn.” In fact, it was new extraction techniques in tight oil and shale gas that helped ease America out of the recession.

But triumphalists beware. Though the United States is now the world’s largest energy producer, it can never be the swing producer of hydrocarbons that Saudi Arabia once was, able to determine world prices by simply deciding how much to pump. That is because the United States is not an autocracy with a national oil company, but a vast network of hundreds of small producers making their own decisions and taking their own risks.

At the same time, the energy revolution has laid the basis for a more politically and economically unified North American continent. For this reason, O’Sullivan criticizes Barack Obama for alienating Canada with his delays of the Keystone XL pipeline and Donald Trump for alienating Mexico with his insults and talk of a “wall” between the two countries. O’Sullivan’s book lays out Trump’s ignorance of the whole United States-Mexico relationship. In 2015, the two countries traded “more than $1 million of goods and services every minute.” Rather than “simply trading in final products, the United States and Mexico build goods together, utilizing complex supply chains that crisscross the border,” a grid-work that includes 20 natural gas pipelines.

It was on the American side of the Gulf of Mexico where a floating storage and re-gasification unit was deployed in 2005 for the first time. Once natural gas is shipped in liquefied form, it can be converted back into gas upon arrival across the sea for actual use. Such units are now helping countries in Central and Eastern Europe receive gas from abroad, lessening their dependence on Russia for energy and creating a more globally integrated energy system. No longer dependent on continental pipelines, countries can now receive more gas by sea. This, in turn, has led to cheaper prices worldwide and stark geopolitical implications. China, for one, has benefited. It became less reliant on piped gas from Russia just at the moment when Moscow, reeling from the shale gas boom, was desperate for a natural gas export deal. The result was price concessions to Beijing that Russia otherwise would not have made.

For Russia, the rise of liquefied natural gas has placed the country in an increasingly greater disadvantage in competing with China for markets and influence in former Soviet Central Asia. Russia may still have an advantage because of its energy reserves, but it cannot wield energy for political ends as bluntly as it used to. While Russia is weakened, O’Sullivan posits that China will become in some respects a better global actor, since cheaper gas and oil will gradually reduce China’s need for friendship with energy-rich autocratic regimes and, as O’Sullivan observes, “reinforces Chinese confidence in one of the key elements of the liberal international order: the market.”

Though not wholly original, O’Sullivan writes with great clarity about a frankly dry and complicated subject. In tackling the Middle East, she observes a number of devastating ironies. Cheap oil does not spell the end of Middle East oil producers. It actually helps them, since it could price out high-cost American, Canadian and European oil. A United States that is more self-sufficient in energy will still have to be active in the Middle East to fight terrorism, resist nuclear weapons proliferation, support Israel and bolster other regional allies. Cheap oil spurs economic reform in Saudi Arabia, but also weakens the cause of Kurdish independence, since a successful Kurdish state will depend on oil revenues. Because energy is still only one factor in geopolitics, albeit a crucial one, power shifts will usually be oblique rather than immediately obvious.

Yet will Saudi Arabia have a revolution? Will Russia eventually become a low-calorie version of the former Yugoslavia? Will oil-rich Nigeria collapse, or oil-rich Venezuela continue to implode? Much will depend on the price of hydrocarbons in the years and decades ahead. In geopolitics, a $40-per-barrel world will be vastly different from a $100-per-barrel one. Rather than the usual policy pablum, “Windfall” is a smart, deeply researched primer on the subject.

Robert D. Kaplan is the author of “Earning the Rockies: How Geography Shapes America’s Role in the World.” He is a senior fellow at the Center for a New American Security and a senior adviser at Eurasia Group.

Information retrieved from the internet 12/28/2017 from: https://www.nytimes.com/2017/12/28/books/review/windfall-meghan-osullivan.html